October 3, 2024
Renewed pressure on French interest rates #FrenchFinance

Renewed pressure on French interest rates #FrenchFinance

CashNews.co

In front of the Banque de France, Paris, June 23, 2024.

The weight of the symbol is considerable: France is now borrowing at a higher rate than Greece. On Thursday, September 26 the French government’s interest rate on five-year bonds was 2.48%, compared with 2.40% for Athens. In short, in the medium term, financial markets have slightly more confidence in a country that went bankrupt 15 years ago than in France.

The fact is that, in the eurozone, not many countries have higher interest rates than France (over a five-year period). The traditional northern countries of course borrow at lower rates (Germany 2%, Netherlands 2.1%), but this is also the case for nations whose public accounts have seriously deteriorated (Portugal 2.2%, Belgium 2.4%, Spain 2.45%).

This rise in French rates “comes in the wake of political tensions and bad budget news,” explained economists at Barclays, a British bank, in a note published on Thursday, September 26. On the one hand, Michel Barnier’s government must present a high-risk budget, under constant pressure from an Assemblée Nationale without a majority. Marine Le Pen, leader of the far-right Rassemblement National party, has described the government as “transitional,” said the note.

‘Zero credibility’

On the other hand, the slippage in France’s public deficit this year is fueling the impression of a lack of budgetary control. Initially forecast at 4.4% of gross domestic product (GDP) in 2024, then successively revised to 5.1% and 5.6%, it should finally exceed 6%, the finance ministry admitted on Wednesday. “France has zero credibility in Europe when it promises to cut spending,” said the governor of a eurozone central bank. “Does anyone really believe that we are going to have a solid budget and obey Brussels?” asked Véronique Riches-Flores, an economist who runs her own consulting firm.

On the scale of the markets, which tend to overreact, the tensions of the last few days do not, however, represent a real financial crisis. Firstly, because the European Central Bank has begun to cut interest rates. France is therefore financing itself at a higher cost than its neighbors, but at a lower cost than at the beginning of the year, when the five-year interest rate was slightly above 3%.

Secondly, the government has no problem selling its debt. The last tender, on September 19, proceeded without difficulty, with twice as much demand from investors than bonds issued.

The precedent to avoid is that of Italy

Among market players, not many seem to believe in a scenario similar to that of Greece, when the country was bankrupt and unable to finance itself. “I don’t think we’re going to see a real slippage,” said Florent Delorme of M & G, an asset management company. The solvency of countries like Italy and France is ensured by investors’ appetite for the single currency. After the dollar, the euro is an essential currency for them.

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